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Why You Need To Plan For Your Retirement Beyond Your Life Expectancy

Life expectancy is an average figure. If we only plan for our retirement to life expectancy, living beyond this number would mean that we would be under-prepared for retirement.


This article was written in collaboration with the CPF Board. All views expressed in this article are the independent opinion of DollarsAndSense.sg

According to a recent article from the Straits Times, our people live an average of 84.4 years, even beating that of Japan (84.1 years), whose citizens are traditionally known to live the longest lives.

This should be good…right?

For most people, living a longer life is seen as a blessing, especially when paired with good health. Longer lives mean being able to spend more time with our loved ones, volunteer for causes that we are passionate about and for a group of us, having the choice to continue working even after we have passed the official retirement and re-employment age in Singapore.

But living longer also comes with additional considerations, such as having to save for a longer retirement. And because nobody can predict how long we will live, it’s common for people to take reference from the reported life expectancy figures and to plan our retirement towards it.

Why You Can’t Plan For Your Retirement Based On Your Expected Life Expectancy

Life expectancy is a numberthat shows how long people are expected to live till. The good news is that in Singapore, this number has been increasing over the past decades as we continue to receive good healthcare services and enjoy a higher quality of life.

Similar to most other countries, females are expected to live longer (87.55) compared to males (81.94).

Here lies the first problem.

As you can see, based on gender alone, we would get two different sets of data. If you are female and planning your retirement based on average life expectancy, then the number you should be looking at is 87.55, which is almost 4 years higher than the national life expectancy of 84.4.

Life expectancy is an average figure, and thus we should expect that a big portion of the population will be living beyond the average life expectancy.

In fact, looking at the data from the Singapore Department of Statistics, 1 in 2 Singaporeans aged 65 today are expected to live beyond 85.

So, if everyone is planning their retirement solely based on the average life expectancy in Singapore, it also means that many would be under-prepared for their retirement.

What then can we do to ensure a secure retirement for ourselves?

# 1 Ensure That You Have A Stream Of Lifelong Income (via CPF LIFE)

One of the best ways to be well-prepared for your retirement, is to ensure you receive a steady stream of passive income throughout your retirement.

In Singapore, we don’t have to search hard for such an instrument.

CPF Lifelong Income For the Elderly (CPF LIFE) is a life annuity scheme that provides Singapore Citizens and Permanent Residents (PRs) the security of a lifelong monthly payout from age 65. The start of CPF LIFE payouts can be deferred till the maximum age of 70 if you choose to.

There are three types of CPF LIFE plans – Standard,Escalating and Basic Plan.

Read Also: CPF LIFE VS Retirement Sum Scheme: What’s The Difference?

The common similarity between all three plans is that once payouts start, you will receive them for as long as you live. In other words, CPF members will never have to worry about the risk of outliving their retirement nest egg.

You can also invest in other asset classes such as stocks, bonds or mutual funds to complement your CPF LIFE payouts if you want. However, it is important to note that investment returns on these instruments are subject to risks.

# 2 Look After Your Health & Your Healthcare Needs

Planning well for our retirement isn’t just about making sure we have sufficient retirement income. We also want to maintain our health – and this means adopting the right diet, lifestyle and exercising regularly.

One of the biggest costs during retirement is healthcare. Thus, ensuring that we have the financial means to afford healthcare services is important.

In Singapore, all of us have MediShield Life, which is a health insurance plan that provides basic protection to all Singaporeans and Permanent Residents against large hospital bills for life. Used alongside our MediSave account, it ensures that Singapore residents will have a basic safety net. Older Singaporeans such as those from the Pioneer Generation or Merdeka Generation will also enjoy additional healthcare benefits.

Here’s a useful graphics that shows 9 ways to tap on your MediSave.

Besides financing healthcare services, we should plan ahead for our long-term care needs. We expect that 1 in 2 healthy Singaporeans aged 65 could become severely disabled in their lifetime, and may need long-term care. The duration for which long-term care is needed will vary from individual to individual. While the median duration that Singaporeans could remain in severe disability is 4 years, about 3 in 10 could remain in severe disability for 10 years or more.

This is where ElderShield and the new CareShield Life scheme (to be introduced in 2020 for those born in 1980 or later, and in 2021 for those born in 1979 or earlier) can help. Both ElderShield and CareShield Life are long-term care insurance schemes to help Singapore residents cope with the cost of long-term care in the event they become severely disabled.

Find Out More: What Is CareShield Life?

Besides government health insurance schemes, we can also consider ElderShield supplements and Integrated Shield plans. Integrated Shield plans comprise MediShield Life and an additional private medical coverage offered by private insurers. These provide an additional layer of protection beyond the basic health insurance benefits.

# 3 Prepare For Your Retirement Ahead Of Time

Just as we encourage our children to start preparing early for their exams, we should likewise start planning for our retirement ahead of time. This gives us the best chance and a longer runway to achieve an enjoyable retirement that we want, where we have the financial means to pursue our passions and spend quality time with our families.

Read Also: How 3 Young Singaporeans Are Securing Their Retirement Goals Early

By planning to have more savings which would last us beyond our life expectancy, we hedge ourselves against the (happy) possibility that we could live a long life.

On top of our CPF LIFE payouts, we can also add on other plans to increase our retirement income, such as buying our own private annuity plans, investing in properties for additional income or to earn dividends and interest from our stocks and bonds.

However, if we are not comfortable with having additional income sources which are not guaranteed, or would require us to have some investment knowledge, topping up our CPF Special Account (SA), or transferring funds from our CPF Ordinary Account to the SA (for members below age 55) in order to earn higher interest, are good alternative options to consider.

By doing so, we solve two problems concurrently. First, we ensure that the additional top-ups that we make to our CPF Special Account (or Retirement Account if we are 55 and above) would earn us an attractive minimum interest rate of 4% per annum. Secondly, we are also able to achieve this without needing any investment knowledge, which makes this a feasible option for anyone to consider.

Find out how much more interest you might earn if you transfer funds from your CPFOA to your CPFSA today through this useful CPF calculator.

Be Kiasu For Your Retirement

When it comes to our retirement plans, it’s perfectly fine to be kiasu. Take this short and interactive quiz to find out if you are making the most of your CPF savings!

Planning to have more than we may need for our retirement isn’t being greedy but clever. When we have excess, it gives us the leeway to spend a little more to indulge in a better retirement, combat inflation and tackle unexpected medical costs or other expenses along the way.

So go ahead and invest for your financial future – because the payoff, while not immediate, would be well worth it.